HMRC takes action to stop renewable energy carousel VAT fraud

The government is cracking down on abuse of renewable energy certificates where fraudsters get involved in complex reselling to steal VAT payments and deprive the Exchequer of revenue

This is an anti-fraud measure which came into force on 14 June without consultation due to HMRC concerns that this type of VAT fraud was becoming prevalent.

It removes the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer in Missing Trader Intra-Community (MTIC) VAT fraud.

The measure will introduce a reverse charge for supplies of renewable energy certificates. These certificates are issued to gas and electricity generators when they produce energy from renewable means.

They are commonly called Guarantees of Origin (GoOs) and are also known as renewable energy certificates (RECS), renewable obligation certificates (ROCS), renewable energy guarantee of origin (REGO) and international renewable energy certificates (I-RECS).

These certificates can also be bought and sold as a commodity attracting others into the market which creates an opportunity for fraud. A reverse charge means that the customer is liable to account for the VAT rather than the supplier. This removes the opportunity for the VAT to be stolen.

GOs purchased from suppliers in another EU member state will be zero-rated for VAT purposes. When on-sold in the UK they are subject to VAT at the standard rate.

 ‘Businesses involved in purchasing GOs need to carry out robust due diligence to avoid being caught up in VAT fraud and suffering significant financial loss. It is essential that businesses take action in response to these risks. Any enquiries raised by HMRC in respect of GO trading should be handled with care,’ said Stuart Walsh, a VAT disputes expert at law firm Pinsent Masons.

Missing trader fraud began with physical goods such as mobile phones and computer chips, but it has spread to the financial services and energy sectors. The current allegations in respect of GO trading bear many similarities to the VAT fraud that affected the carbon credit market in 2009, which reportedly resulted in billions of pounds in lost VAT.

‘The volume and value of the transactions can very quickly create significant VAT exposures for businesses inadvertently caught up in a VAT fraud. Businesses involved in the trading of GOs should therefore carry out a risk assessment of their potential exposure to missing trader fraud and review their due diligence procedures as a matter of urgency,’ Walsh said.

A statutory instrument (SI) has been made under section 55A Value Added Tax Act (VATA) to make taxable persons receiving supplies of renewable energy certificates liable to account for the VAT due on those supplies. The SI was laid on 13 June 2019 and came into effect on 14 June 2019.

Sara White

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